Bill to Regulate Freddie Mac, Fannie Mae Loses Support

Legislation to tighten federal oversight of the two biggest buyers of home loans, Fannie Mae and Freddie Mac, has strong backing in the House but could lose the Bush administration’s support because of a new provision trimming the authority of federal regulators.
The bill is the product of an earlier compromise between majority Democrats in the House and the Bush administration. It also has attracted support from a number of House Republicans.

The multibillion-dollar scandals that roiled Fannie Mae and Freddie Mac in recent years brought demands for tighter government supervision and cuts in their massive mortgage holdings, now worth a combined $1.5 trillion.

The House was scheduled to vote Tuesday to approve the bill providing for stricter federal supervision of the two government-sponsored companies, which together finance or guarantee more than three-quarters of U.S. home mortgages.

But in the House Thursday, the bill was reshaped in a way that lessens the power of the new federal regulator of Fannie Mae and Freddie Mac over their mortgage holdings, compared with an earlier version that moved through the House.

A bipartisan amendment adopted by voice vote puts some restrictions on that authority.

The Bush administration insisted that the new regulator have the discretion and authority to reduce the companies’ home mortgage portfolios.

White House support is considered crucial to the bill’s prospects in the Senate and for eventual congressional passage, following years of failed efforts to enact such legislation.

In Thursday’s debate, a partisan split was evident over the bill’s provision creating a housing aid fund to be financed by Fannie Mae and Freddie Mac.

An estimated $500-600 million a year from the companies’ profits would go to the five-year fund, which would be used to build and rehab housing for low-income people. In the first year, the money from the mortgage lender profits would go towards housing for victims of hurricanes Katrina and Rita.

Diverting home mortgage company profits to the housing fund would impose a “mortgage tax” on every home loan financed by Fannie Mae and Freddie Mac, Republicans said, thereby making middle-class homeowners pay for the fund.

In addition, the White House said it was concerned the fund could be “susceptible to political influences that could compromise the goals of assisting as many low-income families in need as possible.”

SOURCE: Washington Post